Hong Kong: Hong Kong shares fell 2.27% to a one-week low by midday Friday, as banks came under pressure after the Federal Reserve raised the discount rate, sparking fears of further monetary tightening.
The benchmark Hang Seng Index ended down 463.88 points at 19,958.27 by midday, its lowest since 10 February and heading for its biggest one-day percentage drop in two weeks. The China Enterprises Index of top locally listed mainland Chinese stocks was down 2.65% at 11,293.67.
Market turnover rose to HK$24.9 billion ($3.21 billion) from midday Thursday’s HK$19.55 billion.
The Fed said it would raise the interest rate it charges banks for emergency loans to 0.75% from 0.5%, taking a step towards normalising emergency policy used to fight the worst financial crisis since the Great Depression.
But the Fed also said the move did not signal any change in the outlook for the economy or for monetary policy, and left its benchmark interest rate unchanged near zero.
“The market will interprete it as a sign that the Fed is preparing their exit strategy,” said Ben Kwong, chief operating officer at KGI Asia. “In that sense, investors will be more cautious. China is already much more obvious — they’ve started their tightening measures.”
Investors have been jittery about a potential sell-off in equities once central banks start turning off the liquidity taps — one of the main drivers of the blistering 52% gain in Hong Kong stocks in 2009.
Last year, central banks slashed interest rates to record lows and many of them have been providing unlimited amounts of cash to the financial system, some of which has found its way into share prices given the paltry returns on money.
Dealers said investors were reluctant to stake out new positions until they see how Shanghai stocks react to the China central bank’s latest move on Friday to clamp down on excessive lending.
Markets in China will reopen on Monday after being closed all this week for the Lunar New Year holidays.
The People’s Bank of China after the market close on Friday raised banks’ reserve requirements for the second time in two months.
Chinese lenders Bank of Communications fell 4% and ICBC slipped 3.2%. Top Chinese property developer China Overseas Land lost 2.9%.
“Investors are worried that the Chinese banks will react to the reserve requirement increase,” Kwong said. “They are dumping the H shares in preparation for the decline of the A share market.”
China’s Solargiga Energy Holdings, which makes ingots and wafers used in solar products, fell 2.9% to a one-week low after solar bellwether First Solar issued a disappointing outlook for 2010..
Shares in Chinese health food firm Ruinian International fell 5.7% on their debut, as a broad market slump weighed on its HK$900 million ($115.9 million) initial public offering.